The nation’s weak economic fundamentals continue, and the growing political unrest is also causing the currency markets to tremble
The Pakistani rupee has been under severe pressure for a number of months, and the gap between interbank trade and open markets has widened as a result of liquidity shortages that have disrupted the foreign exchange market. Many people are shocked that the rupee is still depreciating despite the reinstatement of the IMF rescue package. However, this pattern was not a surprise. When the exchange rate increased by 10.7 percent to 213.90 to the dollar in interbank trade on August 16 from a historic low of around 240 nearing the end of July, the markets had already taken the IMF lending facility into account. If the ‘brotherly’ Gulf nations had followed through on their promise to contribute $4 billion in safe deposits’ to assist shore up the State Bank’s depleting reserves, it might have maintained that level or perhaps improved slightly.
The bank’s actions to limit imports at the expense of shutting down some significant sectors to prevent the outflow of dollars haven’t benefited the rupee either.
The rupee will continue to be under pressure for at least a while, as evidenced by the fact that the country’s exchange rate has once more dropped by 4.5 percent to 223.42 to the dollar from its best level in mid-August. Indeed, the dollar scarcity is the major reason for the battering of the rupee.
The ongoing catastrophic floods, which have resulted in significant economic losses across the nation and are likely to further slow GDP growth in the near to medium term compared to the pre-flood IMF projection of 3.5 percent for the current fiscal, are also factors that have contributed to the recent market anxiety. Headline price inflation has been surging and reached a 47-year high of 27 percent last month. Growing recessionary pressure in the US and Europe is also anticipated to hinder economic growth in nations like Pakistan.
Along with inflation and flood damage, other factors contributing to the worsening rupee-dollar parity include travelers’ rising demand for foreign currency on the open market, particularly in light of the UAE’s requirement that Pakistanis carry 5,000 dirhams and the recent rise in food imports from Iran and Afghanistan through unofficial channels. It makes sense that the open market price of US money is significantly higher than the interbank rate, or between Rs. 10 and Rs. 15 versus a typical premium of up to Rs2.
The nation’s weak economic fundamentals continue, and the growing political unrest is also causing the currency markets to tremble. The rupee has lost almost a quarter of its value in interbank trade since Imran Khan’s ouster. If India doesn’t receive significant financial assistance from both bilateral and multilateral lenders in the form of loans and flood-related help, the rupee will keep falling against the dollar. The IMF estimates that for the country to avoid default in FY26, it will need to borrow between $31 billion and $39 billion annually from outside. As a result, the road to currency stability and sustained recovery will be difficult and drawn out.